Bank of Commerce Holdings Announces Results for the Second Quarter of 2016

Published 11:00 AM ET Fri, 22 July 2016
Globe Newswire

REDDING, Calif., July 22, 2016 (GLOBE NEWSWIRE) -- Randall S. Eslick, President and Chief Executive Officer of Bank of Commerce Holdings (NASDAQ:BOCH) (the “Company”), a $1.1 billion asset bank holding company and parent company of Redding Bank of Commerce (the “Bank”), today announced financial results for the quarter ended June 30, 2016. Net income available to common shareholders for the quarter ended June 30, 2016 was $1.6 million or $0.11 per share – diluted, compared with net income available to common shareholders of $2.3 million or $0.18 per share – diluted for the same period of 2015.

The current quarter is the first full quarter which includes the benefits derived from the acquisition of five Bank of America branches in March 2016 and the reconfiguration of the Company’s Balance Sheet using liquidity provided by those branches. Compared against the first quarter of 2016:

Net interest income increased $913 thousand (11%)

Net interest margin increased from 3.44% to 3.74%

Average interest rate paid on all deposits decreased from 37 basis points to 30 basis points

Randall S. Eslick, President and CEO commented: “We are pleased to see that the first quarter reconfiguration of our Balance Sheet has provided the benefits we anticipated. Healthy loan growth has had a very positive impact on interest income. The elimination of most brokered and wholesale borrowings and the sizeable growth in low cost core deposits have substantially reduced interest expense. We believe our branch acquisition and financial reconfiguration have achieved the planned results.”

Unrelated to the branch acquisition, the second quarter results were negatively impacted by the $546 thousand impairment of a bond investment which is described in more detail later in this press release.

Financial highlights for the second quarter of 2016:

Net income available to common shareholders totaled $1.6 million

Return on average assets was 0.59%

Return on average equity was 6.85%

Total deposits for the quarter averaged $931.1 million, an increase of $106.9 million from the previous quarter average of $824.2 million

Term debt for the quarter averaged $19.5 million, a decrease of $71.9 million from the previous quarter average of $91.4 million

Gross loans at June 30, 2016 totaled $754.1 million, an increase of $29.9 million (17% annualized) since March 31, 2016

Nonperforming assets at June 30, 2016 totaled $11.7 million or 1.09% of total assets

Gross loans at June 30, 2016 totaled $754.1 million, an increase of $37.5 million (11% annualized) since December 31, 2015.

Nonperforming assets at June 30, 2016 totaled $11.7 million, a decrease of $3.8 million (49% annualized) compared to December 31, 2015

Forward-Looking Statements

This quarterly press release includes forward-looking information, which is subject to the “safe harbor” created by the Securities Act of 1933, and Securities Act of 1934. These forward-looking statements (which involve our plans, beliefs and goals, refer to estimates or use similar terms) involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Such risks and uncertainties include, but are not limited to, the following factors:

Competitive pressure in the banking industry and changes in the regulatory environment

Changes in the interest rate environment and volatility of rate sensitive assets and liabilities

A decline in the health of the economy nationally or regionally which could reduce the demand for loans or reduce the value of real estate collateral securing most of our loans

Credit quality deterioration which could cause an increase in the provision for loan and lease losses

Asset/Liability matching risks and liquidity risks

Changes in the securities markets

For additional information concerning risks and uncertainties related to the Company and its operations please refer to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015 and under the heading: “Risk Factors” and subsequent reports on Form 10-Q and current reports on Form 8-K. Readers are cautioned not to place undue reliance on these forward-looking statements. The Company undertakes no obligation and specifically disclaims any obligation, to revise or publicly release the results of any revision or update to these forward-looking statements to reflect events or circumstances that occur after the date the statements were made.

(2) The Company and the Bank continue to meet all capital adequacy requirements to which they are subject. The decline in the capital ratios of Bank of Commerce Holdings as of June 30, 2016 compared to June 30, 2015 is primarily due to the redemption of $20.0 million of preferred stock (Tier 1 capital) during the fourth quarter of 2015. The $10.0 million of subordinated debt issued during the fourth quarter of 2015 qualifies as Tier 2 capital under the applicable capital adequacy rules and regulations promulgated by the Federal Reserve. The capital ratios for 2016 were also impacted by the addition of $1.8 million of core deposit intangibles and $665 thousand of goodwill recorded in conjunction with a branch acquisition in March of 2016.

BALANCE SHEET OVERVIEW

As of June 30, 2016, the Company had total consolidated assets of $1.1 billion, gross loans of $754.1 million, allowance for loan and lease losses (“ALLL”) of $11.9 million, total deposits of $937.6 million, and shareholders’ equity of $92.5 million.

TABLE 2

LOAN BALANCES BY TYPE - UNAUDITED

(amounts in thousands)

At June 30,

At March 31,

% of

% of

Change

% of

2016

Total

2015

Total

Amount

%

2016

Total

Commercial

$

150,410

20

%

$

143,088

20

%

$

7,322

5

%

$

136,721

19

%

Real estate - construction and land development

39,009

5

27,858

4

11,151

40

%

27,554

4

Real estate - commercial non-owner occupied

253,873

35

236,173

34

17,700

7

%

247,840

34

Real estate - commercial owner occupied

154,480

20

138,183

20

16,297

12

%

154,484

21

Real estate - residential - ITIN

47,188

6

51,249

7

(4,061

)

(8

)

%

48,384

7

Real estate - residential - 1-4 family mortgage

10,862

1

12,209

2

(1,347

)

(11

)

%

10,947

2

Real estate - residential - equity lines

43,971

6

46,463

7

(2,492

)

(5

)

%

44,327

6

Consumer and other

54,347

7

44,551

6

9,796

22

%

53,986

7

Gross loans

754,140

100

%

699,774

100

%

54,366

8

%

724,243

100

%

Deferred fees and costs

1,028

403

625

985

Loans, net of deferred fees and costs

755,168

700,177

54,991

725,228

Allowance for loan and lease losses

(11,864

)

(11,402

)

(462

)

(11,495

)

Net loans

$

743,304

$

688,775

$

54,529

$

713,733

Average yield on loans during the quarter

4.76

%

4.74

%

0.02

4.72

%

The Company recorded gross loan balances of $754.1 million at June 30, 2016, compared with $699.8 million and $724.2 million at June 30, 2015 and March 31, 2016, respectively, an increase of $54.4 million and $29.9 million, respectively. The increase in gross loans compared to the same period a year ago and the prior period was driven by organic loan originations. The increase in deferred fees and costs from June 30, 2015 to June 30, 2016 was the result of increased loan production and revised loan origination costs based on an updated loan origination cost study.

The increase in the ALLL in the current quarter compared to the prior quarter resulted from net loan loss recoveries of $369 thousand. As a result of these net recoveries and continued improved asset quality, no provision for loan and lease losses was deemed necessary during the current quarter or during the prior five consecutive quarters. See table 8 for additional details of the ALLL.

Average yield on interest bearing due from banks and investment securities during the quarter

2.37

%

2.59

%

(0.22

)

2.35

%

As of June 30, 2016, we maintained noninterest-bearing cash positions at the Federal Reserve Bank and correspondent banks in the amount of $14.7 million. We also held interest-bearing deposits in the amount of $51.3 million. The sizeable increase in interest-bearing deposits compared to the same period a year ago derives from liquidity provided by the recent branch acquisition. It is anticipated that much of this liquidity will continue to be deployed into new loans over the remainder of the year.

Available-for-sale investment securities totaled $157.9 million at June 30, 2016, compared with $160.8 million and $174.3 million at June 30, 2015 and March 31, 2016, respectively. Our available-for-sale investment portfolio provides us with a secondary source of liquidity to fund other higher yielding asset opportunities, such as loan originations and wholesale loan purchases. During the second quarter of 2016 we purchased 2 securities with a par value of $4.1 million and weighted average yield of 2.10% and sold 13 securities with a par value of $13.5 million and weighted average yield of 3.39%. The sales activity resulted in $28 thousand in net realized gains. During the same period, we received $5.9 million in proceeds from principal payments, calls and maturities within the available-for-sale investment securities portfolio. Average securities balances and weighted average tax equivalent yields for the quarters ended June 30, 2016 and 2015 were $201.4 million and 3.39% compared to $197.9 million and 3.47%, respectively.

At June 30, 2016, we held $3.2 million par value of AgriBank subordinated notes due July 15, 2019. On April 28, 2016 AgriBank announced that, on July 15, 2016 it would redeem all of the outstanding principal amount of these notes at 100% of the principal amount together with all accrued and unpaid interest. During the second quarter of 2016, we determined that the present value of the expected cash flows on our AgriBank investment was $546 thousand less than our amortized cost basis and recorded an other-than-temporary impairment for that amount. We did not recognize any additional, other-than-temporary impairment losses for the six months ended June 30, 2016, or the year ended December 31, 2015.

At June 30, 2016, our net unrealized gains on available-for-sale investment securities were $2.6 million compared with $1.5 million and $1.7 million at June 30, 2015 and March 31, 2016, respectively. The increase in net unrealized gains between March 31, 2016 and June 30, 2016 is primarily due to interest rate declines over the past three months.

TABLE 4

DEPOSITS BY TYPE - UNAUDITED

(amounts in thousands)

At June 30,

At March 31,

% of

% of

Change

% of

2016

Total

2015

Total

Amount

%

2016

Total

Demand - noninterest bearing

$

224,467

24

%

$

151,640

20

%

$

72,827

48

%

$

212,758

23

%

Demand - interest bearing

385,609

41

276,103

36

109,506

40

%

392,325

42

Total demand

610,076

65

427,743

56

182,333

43

%

605,083

65

Savings

105,228

11

93,500

12

11,728

13

%

105,828

11

Total non-maturing deposits

715,304

76

521,243

68

194,061

37

%

710,911

76

Certificates of deposit

222,252

24

238,796

32

(16,544

)

(7

)

%

226,756

24

Total deposits

$

937,556

100

%

$

760,039

100

%

$

177,517

23

%

$

937,667

100

%

Average rate on interest bearing deposits during the quarter

0.39

%

0.50

%

(0.11

)

0.48

%

Average rate on all deposits during the quarter

0.30

%

0.40

%

(0.10

)

0.37

%

��

Total deposits at June 30, 2016, increased $177.5 million or 23% to $937.6 million compared to June 30, 2015, and decreased $111 thousand or 0.01% compared to March 31, 2016. Total non-maturing deposits increased $194.1 million or 37% compared to the same date a year ago and increased $4.4 million or 1% compared to March 31, 2016. Certificates of deposit decreased $16.5 million or 7% compared to the same date a year ago and decreased $4.5 million or 2% compared to March 31, 2016.

During the first quarter of 2016 the branch acquisition provided an additional $149.0 million of deposits and we called and redeemed $17.5 million of brokered certificates of deposit. At June 30, 2016, the deposits in the acquired branches totaled $139.0 million.

TABLE 5

WHOLESALE AND BROKERED DEPOSITS - UNAUDITED

(amounts in thousands)

At June 30,

At March 31,

2016

2015

2016

CDARS / ICS reciprocal deposits

$

54,783

$

58,628

$

61,601

Third party brokered time deposits

—

17,502

—

Brokered deposits per Call Report

54,783

76,130

61,601

Online listing service time deposits

54,396

63,328

55,986

Total wholesale and brokered deposits

$

109,179

$

139,458

$

117,587

In accordance with regulatory Call Report instructions, the Bank will file (or has filed) quarterly Call Reports which list brokered deposits of $54.8 million, $76.1 million and $61.6 million at June 30, 2016, June 30, 2015 and March 31, 2016, respectively.

INCOME STATEMENT OVERVIEW

TABLE 6

SUMMARY INCOME STATEMENT - UNAUDITED

(amounts in thousands, except per share data)

For The Three Months Ended

June 30,

Change

March 31,

Change

2016

2015

Amount

%

2016

Amount

%

Interest income

$

10,257

$

9,763

$

494

5

%

$

9,904

$

353

4

%

Interest expense

1,040

1,168

(128

)

(11

)

%

1,600

(560

)

(35

)

%

Net interest income

9,217

8,595

622

7

%

8,304

913

11

%

Provision for loan and lease losses

—

—

—

0

%

—

—

0

%

Noninterest income

437

881

(444

)

(50

)

%

949

(512

)

(54

)

%

Noninterest expense:

Branch acquisition and balance sheet reconfiguration costs

168

—

168

100

%

2,795

(2,627

)

(94

)

%

Other noninterest expense

7,500

6,122

1,378

23

%

7,206

294

4

%

Income (loss) before provision for income taxes

1,986

3,354

(1,368

)

(41

)

%

(748

)

2,734

(366

)

%

Deferred tax asset write-off

—

—

—

0

%

363

(363

)

(100

)

%

Provision for income taxes

430

964

(534

)

(55

)

%

(151

)

581

(385

)

%

Net income (loss)

$

1,556

$

2,390

$

(834

)

(35

)

%

$

(960

)

2,516

(262

)

%

Less: Preferred dividends

—

50

(50

)

(100

)

%

—

—

0

%

Income (loss) available to common shareholders

$

1,556

$

2,340

$

(784

)

(34

)

%

$

(960

)

$

2,516

(262

)

%

Basic earnings (loss) per share

$

0.11

$

0.18

$

(0.07

)

(39

)

%

$

(0.07

)

$

0.18

(3

)

%

Average basic shares

13,367

13,338

29

0

%

13,360

7

0

%

Diluted earnings (loss) per share

$

0.11

$

0.18

$

(0.07

)

(39

)

%

$

(0.07

)

$

0.18

(3

)

%

Average diluted shares

13,425

13,370

55

0

%

13,360

65

0

%

Dividends declared per common share

$

0.03

$

0.03

$

—

0

%

$

0.03

$

—

0

%

Second Quarter of 2016 Compared With Second Quarter of 2015

Net income available to common shareholders for the second quarter of 2016 decreased $784 thousand over the second quarter of 2015. In the current quarter, net interest income was $622 thousand higher, and the provision for income tax was $534 lower. These positive changes were offset by a decrease in noninterest income of $444 thousand and an increase in noninterest expense of $1.5 million.

Net Interest Income

Net interest income increased $622 thousand over a year previous.

Interest income for the three months ended June 30, 2016 increased $494 thousand or 5% to $10.3 million. Interest and fees on loans increased $492 thousand due to increased average loan balances. Interest on interest bearing deposits due from banks increased $9 thousand while interest on securities decreased $7 thousand.

Interest expense for the second quarter of 2016 decreased $128 thousand or 11% to $1.0 million. The net decrease was caused by the following.

Interest on FHLB term debt decreased $364 thousand. During the first quarter of 2016 all FHLB term debt was repaid and an interest rate hedge associated with $75.0 million of that debt was terminated.

Interest on $20.0 million of senior and subordinated term debt increased $294 thousand. The senior and subordinated term debt was issued during the fourth quarter of 2015 to redeem $20.0 million of preferred stock.

Noninterest income for the three months ended June 30, 2016 decreased $444 thousand compared to the same period a year ago. During the second quarter of 2016 we recorded a $546 thousand other-than-temporary impairment on an investment security as described in Note 4 to our March 31, 2016 Form 10-Q. Our branch and offsite ATM acquisition completed in the first quarter, enhanced point of sale and ATM fees by $241 thousand for the quarter ended June 30, 2016 compared to the same period a year ago. Additionally, a $205 thousand special dividend on Federal Home Loan Bank of San Francisco stock was included in other noninterest income during the three months ended June 30, 2015.

Noninterest Expense

Noninterest expense for the three months ended June 30, 2016 increased $1.5 million compared to the same period a year ago. The increase was primarily driven by increased costs to operate the five newly acquired branches and three offsite ATM locations. Noninterest expenses that increased during the current quarter compared to the same period a year ago included the following:

ATM processing fees increased $84 thousand as a result of the additional activity at the recently acquired branch and offsite ATM locations

Telecommunications expense increased $90 thousand

Branch acquisition costs of $168 thousand

Income Tax Provision

During the three months ended June 30, 2016, the Company recorded a provision for income taxes of $430 thousand compared with a provision for income taxes of $964 thousand for the same period a year ago. The decrease in the current quarter is due to decreased taxable income. Pre-tax income for 2016 is less than in 2015, while permanent deductions and tax credits are essentially unchanged resulting in a decrease in the effective tax rate for 2016. As a result, the Company’s effective tax rate decreased from 28.74% for the second quarter of 2015 to 21.65% during the current quarter.

Second Quarter of 2016 Compared With First Quarter of 2016

Net income available to common shareholders for the second quarter of 2016 increased $2.5 million over the first quarter of 2016. In the current quarter, net interest income was $913 thousand higher and noninterest expenses were $2.3 million lower. These positive changes were offset by a decrease in noninterest income of $512 thousand and an increase in the provision for income taxes of $218 thousand.

Net Interest Income

Net interest income increased $913 thousand over the prior quarter.

Interest income for the three months ended June 30, 2016 increased $353 thousand or 4% to $10.3 million compared to the prior quarter. Interest and fees on loans increased $345 thousand and interest on securities increased $18 thousand due to increased average loan and securities balances. Interest on interest bearing deposits due from banks decreased $10 thousand due to decreased average interest bearing deposit balances.

Interest expense for the three months ended June 30, 2016 decreased $560 thousand or 35% to $1.0 million compared to the prior quarter. Interest expense on term debt decreased $487 thousand due to the repayment of $75.0 million of FHLB term debt and the termination of the interest rate hedge associated with that debt during the first quarter of 2016. Average total deposits for the second quarter of 2016 increased $106.9 million from the first quarter of 2016 however, interest expense on those deposits declined $78 thousand due to a nine basis point decline in the average rate paid on interest bearing deposits.

Noninterest Income

Noninterest income for the three months ended June 30, 2016 decreased $512 thousand compared to the prior quarter. In addition to the previously mentioned $546 thousand other-than-temporary impairment of an investment security, net gains recognized on the sale of available-for-sale investment securities during the current quarter decreased by $66 thousand to $28 thousand compared to a $94 thousand net gain in the prior quarter. Point of sale and ATM fees increased $244 thousand primarily as a result of the acquisition of five branch and three offsite ATM locations during March of 2016. Noninterest income during the first quarter of 2016 included a $176 thousand gain on payoff of a purchased impaired loan.

Noninterest Expense

Noninterest expense for the three months ended June 30, 2016 decreased $2.3 million compared to the prior quarter.

The decrease in noninterest expense was primarily driven by following positive items:

ATM processing fees increased $84 thousand as a result of the recently acquired branch and offsite ATM locations

Data processing fees increased $73 thousand

Telecommunications expense increased $52 thousand

Income Tax Provision

During the three months ended June 30, 2016, we recorded a provision for income taxes of $430 thousand. During the three months ended March 31, 2016, we recorded an income tax benefit related to operating losses of $151 thousand and wrote-off a $363 thousand deferred tax asset; a net expense of $212 thousand. Our effective tax rate increased slightly to 21.65% in the second quarter from 20.19% (excluding the write-off of deferred tax asset) in the first quarter of 2016.

Earnings Per Share

Diluted earnings per share available to common shareholders were $0.11 for the three months ended June 30, 2016 compared with diluted earnings per share available to common shareholders of $0.18 for the same period a year ago, and net losses per share available to common shareholders of $0.07 for the prior period. Earnings per share for the three months ended June 30, 2016 declined $0.07 compared to the same period a year ago as a result of a $784 thousand decrease in net income, and increased $0.18 compared to the prior quarter as a result of a $2.5 million increase in net income. The causes of these increases and decreases in earnings have been previously detailed in this press release.

TABLE 7

NET INTEREST MARGIN - UNAUDITED

(amounts in thousands)

For The Three Months Ended

June 30,

Change

March 31,

Change

2016

2015

Amount

2016

Amount

Yield on average interest earning assets

4.16

%

4.21

%

(0.05

)

4.10

%

0.06

Interest expense to fund average earning assets

0.42

%

0.50

%

(0.08

)

0.66

%

(0.24

)

Net interest margin - nominal

3.74

%

3.71

%

0.03

3.44

%

0.30

Yield on average interest earning assets - tax equivalent basis

4.29

%

4.35

%

(0.06

)

4.23

%

0.06

Interest expense to fund average earning assets

0.42

%

0.50

%

(0.08

)

0.66

%

(0.24

)

Net interest margin - tax equivalent basis

3.87

%

3.85

%

0.02

3.57

%

0.30

Average earning assets

$

990,132

$

928,578

$

61,554

$

969,818

$

20,314

Average interest bearing liabilities

$

740,579

$

723,288

$

17,291

$

743,388

$

(2,809

)

The current quarter net interest margin increased 30 basis points to 3.74% as compared to the prior quarter. This was caused by increased yield on the loan portfolio, a decrease in the overall cost of interest bearing deposits, and by the elimination of our contractual interest payments on $75.0 million Federal Home Loan Bank of San Francisco borrowings. These positive changes were partially offset by interest on $20.0 million of new term debt issued during the fourth quarter of 2015.

The current quarter net interest margin increased 3 basis points to 3.74% as compared to the same period a year ago. The increase resulted from an eight basis point decrease in interest expense to fund average earning assets offset by a five basis point decrease in yield on average earning assets. During the second quarter of 2016, interest on the $20.0 million of new term debt issued during the fourth quarter of 2015 totaled $295 thousand and reduced the net interest margin by 10 basis points.

During the second quarter of 2016, deposit balances increased $177.5 million and decreased $111 thousand compared to the same period a year ago and the prior quarter respectively. The increase in deposit balances results from the recent branch acquisition and strong organic growth. Our overall cost of total deposits decreased to 0.30% for the quarter ended June 30, 2016 from 0.40% for the same period a year ago and from 0.37% for the prior quarter.

We realized net loan loss recoveries of $369 thousand in the current quarter compared with net loan loss recoveries of $315 thousand in the prior quarter and net loan loss recoveries of $106 thousand for the same period a year ago. Recoveries during the second quarter of 2016 of $1.9 million were primarily associated with one commercial real estate relationship, offset by $1.4 million in charge-offs related to two commercial loan relationships and one residential real estate loan.

We continue to monitor credit quality, and adjust the ALLL to ensure that the ALLL is maintained at a level that is adequate to cover estimated credit losses in the loan and lease portfolio. We made no provision for loan and lease losses during this quarter or the previous five consecutive quarters. Our ALLL as a percentage of gross loans was 1.57% as of June 30, 2016 compared to 1.63% as of June 30, 2015 and 1.59% as of March 31, 2016. Based on the Bank’s ALLL methodology, which uses criteria such as risk weighting and historical loss rates, and given the ongoing improvements in asset quality, management believes the Company’s ALLL is adequate at June 30, 2016. There is, however, no assurance that future loan and lease losses will not exceed the levels provided for in the ALLL and could possibly result in future charges to the provision for loan and lease losses.

At June 30, 2016, the recorded investment in loans classified as impaired totaled $18.9 million, with a corresponding valuation allowance of $903 thousand compared to impaired loans of $25.0 million with a corresponding valuation allowance of $1.3 million at June 30, 2015 and impaired loans of $19.1 million, with a corresponding valuation allowance of $1.1 million at March 31, 2016. The valuation allowance on impaired loans represents the impairment reserves on performing restructured loans, other accruing loans, and nonaccrual loans.

TABLE 9

PERIOD END TROUBLED DEBT RESTRUCTURINGS - UNAUDITED

(amounts in thousands)

At June 30,

At March 31,

At December 31,

At September 30,

At June 30,

2016

2016

2015

2015

2015

Nonaccrual

$

3,785

$

4,516

$

9,015

$

11,149

$

12,354

Accruing

7,460

6,916

6,889

6,870

7,563

Total troubled debt restructurings

$

11,245

$

11,432

$

15,904

$

18,019

$

19,917

Percentage of total gross loans

1.49

%

1.58

%

2.22

%

2.51

%

2.85

%

Loans are reported as a troubled debt restructuring when we grant a concession(s) to a borrower experiencing financial difficulties that it would not otherwise consider. Examples of such concessions include a reduction in the loan rate, forgiveness of principal or accrued interest, extending the maturity date(s) significantly, or providing a lower interest rate than would be normally available for a transaction of similar risk. As a result of these concessions, restructured loans are impaired as we will not collect all amounts due, either principal or interest, in accordance with the terms of the original loan agreement. Impairment reserves on non-collateral dependent restructured loans are measured by calculating the present value of expected future cash flows of the restructured loans, discounted at the effective interest rate of the original loan agreement. These impairment reserves are recognized as a specific component to be provided for in the ALLL.

During the three months ended June 30, 2016, the Company restructured one loan to grant a rate and maturity modification. The loan was classified as troubled debt restructurings and placed on nonaccrual status. As of June 30, 2016, we had 118 restructured loans that qualified as troubled debt restructurings, of which 108 were performing according to their restructured terms.

TABLE 10

NONPERFORMING ASSETS - UNAUDITED

(amounts in thousands)

At June 30,

At March 31,

At December 31,

At September 30,

At June 30,

2016

2016

2015

2015

2015

Total nonaccrual loans

$

10,911

$

11,698

$

14,009

$

15,541

$

16,907

90 days past due and still accruing

10

—

88

52

54

Total nonperforming loans

10,921

11,698

14,097

15,593

16,961

Other real estate owned

765

1,011

1,423

1,525

1,405

Total nonperforming assets

$

11,686

$

12,709

$

15,520

$

17,118

$

18,366

Nonperforming loans to gross loans

1.45

%

1.62

%

1.97

%

2.17

%

2.42

%

Nonperforming assets to total assets

1.09

%

1.18

%

1.53

%

1.73

%

1.87

%

At June 30, 2016, June 30, 2015 and March 31, 2016, the recorded investment in OREO was $765 thousand, $1.4 million and $1.0 million, respectively. The June 30, 2016 OREO balance consists of four properties, of which one is a 1-4 family residential real estate property in the amount of $81 thousand, two are nonfarm nonresidential properties in the amount of $558 thousand and one is an undeveloped commercial property in the amount of $126 thousand.

TABLE 11

UNAUDITED CONSOLIDATED

BALANCE SHEET

(amounts in thousands, except per share data)

At June 30,

At June 30,

Change

At March 31,

2016

2015

$

%

2016

Assets:

Cash and due from banks

$

14,695

$

11,115

$

3,580

32

%

$

14,969

Interest-bearing deposits in other banks

51,345

21,681

29,664

137

%

70,781

Total cash and cash equivalents

66,040

32,796

33,244

101

%

85,750

Securities available-for-sale, at fair value

157,906

160,763

(2,857

)

(2

)

%

174,251

Securities held-to-maturity, at amortized cost

35,415

36,655

(1,240

)

(3

)

%

35,357

Loans, net of deferred fees and costs

755,168

700,177

54,991

8

%

725,228

Allowance for loan and lease losses

(11,864

)

(11,402

)

(462

)

4

%

(11,495

)

Net loans

743,304

688,775

54,529

8

%

713,733

Premises and equipment, net

15,660

11,342

4,318

38

%

15,494

Other real estate owned

765

1,405

(640

)

(46

)

%

1,011

Goodwill and core deposit intangibles, net

2,362

—

2,362

100

%

2,469

Life insurance

22,794

22,168

626

3

%

22,642

Deferred taxes

8,026

10,648

(2,622

)

(25

)

%

8,389

Other assets

17,920

18,503

(583

)

(3

)

%

17,987

Total assets

$

1,070,192

$

983,055

$

87,137

9

%

$

1,077,083

Liabilities and shareholders' equity:

Demand - noninterest bearing

$

224,467

$

151,640

$

72,827

48

%

$

212,758

Demand - interest bearing

385,609

276,103

109,506

40

%

392,325

Savings

105,228

93,500

11,728

13

%

105,828

Certificates of deposit

222,252

238,796

(16,544

)

(7

)

%

226,756

Total deposits

937,556

760,039

177,517

23

%

937,667

Term debt

19,577

90,000

(70,423

)

(78

)

%

19,839

Unamortized debt issuance costs

(201

)

—

(201

)

100

%

(213

)

Net term debt

19,376

90,000

(70,624

)

(78

)

%

19,626

Junior subordinated debentures

10,310

10,310

—

0

%

10,310

Other liabilities

10,462

16,156

(5,694

)

(35

)

%

18,762

Total liabilities

977,704

876,505

101,199

12

%

986,365

Shareholders' equity:

Preferred stock

—

19,931

(19,931

)

(100

)

%

—

Common stock

24,421

24,144

277

1

%

24,325

Retained earnings

66,356

63,158

3,198

5

%

65,201

Accumulated other comprehensive income (loss), net of tax

1,711

(683

)

2,394

(351

)

%

1,192

Total shareholders' equity

92,488

106,550

(14,062

)

(13

)

%

90,718

Total liabilities and shareholders' equity

$

1,070,192

$

983,055

$

87,137

9

%

$

1,077,083

Total interest earning assets

$

997,211

$

917,756

$

79,455

9

%

$

1,002,492

Shares outstanding

13,439

13,364

13,442

Tangible book value per share

$

6.71

$

6.48

$

6.57

TABLE 12

UNAUDITED

INCOME STATEMENT

(amounts in thousands, except per share data)

For The Three Months Ended

For The Six Months Ended

June 30,

Change

March 31,

June 30,

2016

2015

$

%

2016

2016

2015

Interest income:

Interest and fees on loans

$

8,796

$

8,304

$

492

6

%

$

8,451

$

17,247

$

16,215

Interest on securities

808

801

7

1

%

784

1,592

1,746

Interest on tax-exempt securities

588

602

(14

)

(2

)

%

594

1,182

1,201

Interest on deposits in other banks

65

56

9

16

%

75

140

127

Total interest income

10,257

9,763

494

5

%

9,904

20,161

19,289

Interest expense:

Interest on demand deposits

130

107

23

21

%

122

252

223

Interest on savings deposits

41

55

(14

)

(25

)

%

45

86

109

Interest on certificates of deposit

515

594

(79

)

(13

)

%

597

1,112

1,185

Interest on term debt

295

363

(68

)

(19

)

%

782

1,077

712

Interest on other borrowings

59

49

10

20

%

54

113

96

Total interest expense

1,040

1,168

(128

)

(11

)

%

1,600

2,640

2,325

Net interest income

9,217

8,595

622

7

%

8,304

17,521

16,964

Provision for loan and lease losses

—

—

—

0

%

—

—

—

Net interest income after provision for loan and lease losses

9,217

8,595

622

7

%

8,304

17,521

16,964

Noninterest income:

Service charges on deposit accounts

88

52

36

69

%

72

160

101

Payroll and benefit processing fees

139

130

9

7

%

160

299

278

Earnings on cash surrender value - life insurance

153

159

(6

)

(4

)

%

156

309

324

Gain on investment securities, net

28

61

(33

)

(54

)

%

94

122

276

Impairment losses on investment securities

(546

)

—

(546

)

100

%

—

(546

)

—

ATM and point of sale

335

92

243

264

%

92

427

183

Other income

240

387

(147

)

(38

)

%

375

615

573

Total noninterest income

437

881

(444

)

(50

)

%

949

1,386

1,735

TABLE 12 - CONTINUED

UNAUDITED

INCOME STATEMENT

(amounts in thousands, except per share data)

For The Three Months Ended

For The Six Months Ended

June 30,

Change

March 31,

June 30,

2016

2015

$

%

2016

2016

2015

Noninterest expense:

Salaries and related benefits

4,086

3,575

511

14

%

4,229

8,315

7,485

Occupancy and equipment

987

709

278

39

%

789

1,776

1,443

Federal Deposit Insurance Corporation insurance premium

181

178

3

2

%

156

337

385

Data processing fees

374

251

123

49

%

304

678

493

Professional service fees

470

442

28

6

%

436

906

830

Telecommunications

199

109

90

83

%

147

346

219

Branch acquisition costs

168

—

168

100

%

412

580

—

Loss on cancellation of interest rate swap

—

—

—

100

%

2,325

2,325

—

Other expenses

1,203

858

345

40

%

1,203

2,406

1,860

Total noninterest expense

7,668

6,122

1,546

25

%

10,001

17,669

12,715

Income before provision for income taxes

1,986

3,354

(1,368

)

(41

)

%

(748

)

1,238

5,984

Deferred tax asset write-off

—

—

—

0

%

363

363

—

Provision for income taxes

430

964

(534

)

(55

)

%

(151

)

279

1,793

Net income

$

1,556

$

2,390

$

(834

)

(35

)

%

$

(960

)

$

596

$

4,191

Less: Preferred dividends

—

50

(50

)

(100

)

%

—

—

100

Income available to common shareholders

$

1,556

$

2,340

$

(784

)

(34

)

%

$

(960

)

$

596

$

4,091

Basic earnings per share

$

0.11

$

0.18

$

(0.07

)

(39

)

%

$

(0.07

)

$

0.04

$

0.31

Average basic shares

13,367

13,338

29

0

%

13,360

13,364

13,320

Diluted earnings per share

$

0.11

$

0.18

$

(0.07

)

(39

)

%

$

(0.07

)

$

0.04

$

0.31

Average diluted shares

13,425

13,370

55

0

%

13,360

13,408

13,353

TABLE 13

UNAUDITED CONDENSED CONSOLIDATED

YEAR TO DATE AVERAGE BALANCE SHEETS

(amounts in thousands)

For the Six Months Ended

For the Twelve Months Ended

June 30,

June 30,

December 31,

December 31,

December 31,

2016

2015

2015

2014

2013

Earning assets:

Loans

$

731,740

$

688,146

$

699,227

$

625,166

$

612,780

Taxable securities

122,050

128,791

120,897

147,916

157,486

Tax exempt securities

77,510

77,043

77,089

83,973

92,854

Interest-bearing deposits in other banks

48,676

26,795

30,323

56,465

43,342

Average earning assets

979,976

920,775

927,536

913,520

906,462

Cash and due from banks

14,665

10,566

11,220

11,246

10,624

Premises and equipment, net

14,008

11,980

11,552

12,105

10,337

Other assets

40,543

43,085

42,423

36,936

26,431

Average total assets

$

1,049,192

$

986,406

$

992,731

$

973,807

$

953,854

Liabilities and shareholders' equity:

Demand - noninterest bearing

$

201,457

$

148,179

$

156,578

$

139,792

$

122,011

Demand - interest bearing

353,291

272,349

283,105

272,383

244,125

Savings

100,008

92,227

92,659

91,108

92,502

Certificates of deposit

222,897

246,137

238,626

259,445

248,350

Total deposits

877,653

758,892

770,968

762,728

706,988

Repurchase agreements

—

—

—

—

5,780

Term debt

55,478

94,779

88,874

77,534

107,603

Junior subordinated debentures

10,310

10,310

10,310

15,239

15,465

Other liabilities

14,439

17,013

16,588

15,934

11,825

Average total liabilities

957,880

880,994

886,740

871,435

847,661

Shareholders' equity

91,312

105,412

105,991

102,372

106,193

Average liabilities & shareholders' equity

$

1,049,192

$

986,406

$

992,731

$

973,807

$

953,854

TABLE 14

UNAUDITED CONDENSED CONSOLIDATED

QUARTERLY AVERAGE BALANCE SHEETS

(amounts in thousands)

For The Three Months Ended

June 30,

March 31,

December 31,

September 30,

June 30,

2016

2016

2015

2015

2015

Earning assets:

Loans

$

742,684

$

720,795

$

714,494

$

705,762

$

703,008

Taxable securities

124,183

119,917

111,098

115,165

121,110

Tax exempt securities

77,168

77,852

78,081

76,190

76,772

Interest-bearing deposits in other banks

46,097

51,254

37,158

30,430

27,688

Average earning assets

990,132

969,818

940,831

927,547

928,578

Cash and due from banks

17,028

12,301

12,372

11,355

10,833

Premises and equipment, net

15,632

12,384

11,001

11,265

11,767

Other assets

41,394

39,700

41,666

41,867

42,637

Average total assets

$

1,064,186

$

1,034,203

$

1,005,870

$

992,034

$

993,815

Liabilities and shareholders' equity:

Demand - noninterest bearing

$

220,377

$

182,539

$

171,449

$

158,232

$

147,442

Demand - interest bearing

382,811

323,771

302,862

284,508

268,784

Savings

103,990

96,027

92,939

93,230

93,291

Certificates of deposit

223,958

221,836

226,924

235,551

245,573

Total deposits

931,136

824,173

794,174

771,521

755,090

Term debt

19,510

91,444

79,772

86,359

105,330

Junior subordinated debentures

10,310

10,310

10,310

10,310

10,310

Other liabilities

11,913

16,969

16,197

16,140

16,887

Average total liabilities

972,869

942,896

900,453

884,330

887,617

Shareholders' equity

91,317

91,307

105,417

107,704

106,198

Average liabilities & shareholders' equity

$

1,064,186

$

1,034,203

$

1,005,870

$

992,034

$

993,815

About Bank of Commerce Holdings

Bank of Commerce Holdings is a bank holding company headquartered in Redding, California and is the parent company for Redding Bank of Commerce which operates under two separate names: Redding Bank of Commerce and Sacramento Bank of Commerce, a division of Redding Bank of Commerce. The Bank is an FDIC insured California banking corporation providing commercial banking and financial services through nine offices located in Northern California. The Bank opened on October 22, 1982. The Company’s common stock is listed on the NASDAQ Global Market and trades under the symbol “BOCH”.